CHAPTER 3 CONCEPTUAL COST ESTIMATING - Delta Univ

CHAPTER 3 CONCEPTUAL COST ESTIMATING

At the beginning of a project by the owner, prior to any design, only limited information is known about a project. However, the owner must know the approximate to evaluate the economic feasibility of proceeding with the project. Thus, there is a need to determine the approximate cost of a project during its conceptual phase.

A conceptual estimate is also known as a top-down, order of magnitude, feasibility, analogous, or preliminary estimate. It is the first serious effort made to predict the cost of the project. A conceptual estimate is usually performed as part of the project feasibility analysis at the beginning of the project. In this way, the estimate is made with limited information on project scope, and is usually made without detailed design and engineering data. The conceptual estimate is also defined as approximate estimate and used to know the budget for a project. Considerable experience and judgment are required to obtain a dependable approximate estimate for the cost.

3.1 Conceptual Cost Estimating Basics

Conceptual cost estimating is an important pre-design planning process. The following subsections present the conceptual cost estimating definitions, characteristics, importance, preparation, process, and outputs.

3.1.1 Conceptual cost estimating definition A "conceptual estimate" is an estimate prepared by using engineering concepts and avoiding the counting of individual pieces. As the name implies, conceptual estimates are

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generally made in the early phases of a project, before construction drawings are completed, often before they are hardly begin. The first function of a conceptual estimate is to tell the owner about the anticipated cost, thus presenting useful information for the owner in contemplating the project feasibility and further development. A conceptual estimate is also used to set a preliminary construction budget, and to control construction costs at the most critical stage, during the design. Conceptual cost estimating is defined as the forecast of project costs that is performed before any significant amount of information is available from detailed design and with incomplete work scope definition, with the purpose of using it as the basis for important project decisions like go/no-go and the appropriation of funds decisions.

3.1.2 Conceptual cost estimating characteristics

The first recognized characteristic of conceptual estimating, like all other estimating, is the inexactness in the process. With the absence of data and with shortage of time, there may be no other way to evaluate designs but to use opinion. Conceptual estimating is a mixture of art and science; the science of estimating tells the cost of past work. The art is in visualizing a project and the construction of each detail, selecting comparative costs from past projects and adjusting them to new conditions.

The second characteristic of conceptual estimating is that its accuracy and validity are highly related to the level of information provided by the project scope. The availability of a good, complete scope definition is considered the most crucial factor for conceptual estimating.

The third characteristic of conceptual estimating is that it is a resource restricted activity. The main resources for conceptual estimating are information, time, and cost. Due to the fact that conceptual estimating is performed in the early stages of the project, the scope information available is usually restricted in detail as well as in precision. In addition, the time and cost available for making the estimate is restricted. Conceptual estimating is used to determine the feasibility of a project quickly or screen several alternative designs. Therefore, the estimate, although important, cannot be given much time and resources.

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3.1.3 Importance of conceptual cost estimates

Preliminary estimate assists the overall cost-control program by serving as the first check against the budget. It will indicate the cost overruns early enough for the project team to review the design for possible alternates. Since preliminary estimate is made prior to the completion of detailed design, the margin of error will be relatively large. Then, the larger contingency should be applied. The contingency varies with the amount of design information available and the extent of cost information obtainable from similar projects.

3.1.4 Preparation of conceptual cost estimates

A generic conceptual cost estimating preparations is shown in Figure 3.1, the preparations begins with a request made by management to estimate the cost of a new project. The most important part of the request is the project scope. The first task for the estimator is to study and interpret the project scope and produce an estimating plan. The next task is to collect historical data related to similar past projects. The selection and usage of these data is crucial for the estimating preparations because inappropriate information will negatively affect the estimate. The outputs from this stage are the project conceptual cost estimate and a documented estimating basis used to develop this cost. It is very important to describe in detail all the information, assumptions, adjustments, and procedures considered in the estimate. The resulting conceptual cost estimate is then submitted to management for decision-making.

To prepare an elemental cost plan the following information should be assembled: ? A cost analysis of a previous similar building ? Sketch plans and elevations of the proposed project ? Outline specification/levels of services installation, etc. for the proposed project.

3.1.5 Conceptual Cost Estimating Output

The primary output of the cost estimating effort is the cost estimate. The estimate is typically expressed in unit cost. Alternative units can be work quantities, material quantities, or staff work hours. However, for majority of the highway construction

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projects, the unit cost are mostly applicable; therefore, they are frequently used.

Request for Estimate

Study & Interpretation of Information

Collect Additional Information

Conceptual Cost Estimating Report to Management

Not Approved

Decision Making

Approved

Preliminary Budget

Fig. 3.1: Conceptual cost estimating preparations

3.2 Broad Scope of Conceptual Estimates

Prior the design of a project, cost estimate could be prepared based on the cost information based on previously completed projects similar to the proposed project. The number of units or size of the project is the only available information. Although the range of costs varies among projects, the estimator can develop unit costs to forecast the cost of future projects.

The unit cost should be developed from weighting the data that emphasizes the average value, yet it should account for the extreme maximum and minimum values. In that regard Eq. (3.1) can be used for weighting cost data from previous projects.

Where:

UC = (A + 4B + C) / 6 UC = forecast unit cost A = minimum unit cost of previous projects

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(3.1)

Dr. Emad Elbeltagi

B = average unit cost of previous project C = maximum unit cost of previous projects

Example 3.1 Use the weighted unit cost to determine the conceptual cost estimate for a proposed parking that is to contain 135 parked cars. Previous projects data are given in Table 3.1. Table 3.1: Previous projects cost data

Project No.

1 2 3 4 5 6 7 8

Cost (LE)

466,580 290,304 525,096 349,920 259,290 657,206 291,718 711,414

No. of cars

150 80 120 90 60 220 70 180

Solution The unit cost per car can be calculated as given in Table 3.2.

Table 3.2: Unit cost per car

Project No.

1 2 3 4 5 6 7 8

Unit cost (LE/car)

3,110.4 3,628.8 4,375.8 3,888.0 4,321.5 2,978.3 4,167.4 3,952.3

Then, the average unit cost = 30,431.5 / 8 = LE3,803.94 / car Using Eq. 3.1, the forecast unit cost = (2,987.3 + 4 ? 3,803.94 + 4,375.8) / 6 = 3,763.14. Accordingly, the cost estimate for 135-cars parking = 135 ? 3,763.14 = LE508,023

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